An Update on Holiday Pay

Travel vacation background concept

The government has recently been circulating adverts promoting the holiday pay awareness campaign. ‘Holiday pay: it comes with the job’ is part of the modern Industrial Strategy, which aims to give employers and workers a better understanding of both workplace rights and responsibilities.

Recent research suggests some 1.8 million people currently do not receive the holiday pay to which they are entitled, and means employers are potentially underpaying their workforce by £1.8 billion each year. Those working non-standard hours or in less traditional roles are particularly high-risk categories.

For employers, the issue is about correctly determining employment status, and understanding the rights pertaining to the various employment categories. For tax purposes, there are just two employment categories: employee and self-employed. For employment law purposes, there are three: employee, self-employed and ‘worker’. Holiday pay entitlement extends to not just full-time staff, but part-time and zero-hours staff, so it is important employers appreciate this means not just employees, but those in the ‘worker’ category as well.

Relevant calculations are based on the number of days or hours worked, and how someone is paid. Any additional arrangements made with the employer also need to be factored in. The underlying concept is that pay received on holiday should mirror what would have been earned at work.

Holiday entitlement starts to build up from the first day of work, and probationary periods, periods of sick leave, maternity, paternity or adoption leave also count towards it. A week’s pay is due for each week of statutory holiday leave, and most workers are entitled to 5.6 weeks’ paid holiday each year.

Where someone gets a regular monthly salary with non-varying hours and pay, no separate holiday pay calculation is needed. These staff simply get the usual monthly payment for any month which includes holiday.

Working out what constitutes a ‘week’s’ pay for shift workers or people not working fixed hours is more complicated. Here calculations involve establishing average hours or average pay, looking back over the last 12 paid weeks of work. A ‘week’ usually means seven days running from Sunday to Saturday, but there can be exceptions to this. The 12-week period is known as the ‘holiday pay reference’ period. Note that from 6 April 2020, the holiday pay reference period increases from 12 weeks to 52 weeks.

Care is needed where there are workers on short contracts, or where temporary or agency workers are involved. If holiday entitlement has not been taken by the time such workers leave, they are due payment in lieu of untaken holiday. There is a holiday entitlement calculator for employers to use: bit.ly/1picPiR. Updated guidance regarding workers with irregular hours can be found here: bit.ly/2JAEa6j. This includes details of case law regarding holiday pay, and potential problem areas where EU and UK legislation interact.

Should you have any questions on holiday pay and payroll, we would be delighted to assist you.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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